JetBlue Airways (JBLU) 10-Q 2006 Q2 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

or

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number: 000-49728

JETBLUE AIRWAYS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware			87-0617894
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
118-29 Queens Boulevard, Forest Hills, New York			11375
(Address of principal executive offices)			(Zip Code)

(718) 286-7900

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes         No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer                     Accelerated filer                    Non-accelerated filer    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes    No    

As of June 30, 2006, there were 175,473,545 shares of the registrant's common stock, par value $0.01, outstanding.

JetBlue Airways Corporation

FORM 10-Q

INDEX

						Page #'s
PART I.   FINANCIAL INFORMATION
Item 1.			Financial Statements					1
			Condensed Consolidated Balance Sheets – June 30, 2006 and December 31, 2005					1
			Consolidated Statements of Income – Three and Six Months Ended June 30, 2006 and 2005					2
			Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2006 and 2005					3
			Notes to Condensed Consolidated Financial Statements					4
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations					11
Item 3.			Quantitative and Qualitative Disclosures About Market Risk					21
Item 4.			Controls and Procedures					22
PART II.  OTHER INFORMATION
Item 1.			Legal Proceedings					23
Item 4.			Submission of Matters to a Vote of Security Holders					23
Item 6.			Exhibits					23

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PART 1.    FINANCIAL INFORMATION

Item 1.    Financial Statements

JETBLUE AIRWAYS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

			June 30, 2006						December 31, 2005
			(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents				$	6					$	6
Investment securities					462						478
Receivables, less allowance					72						94
Prepaid expenses and other					81						57
Total current assets					621						635
PROPERTY AND EQUIPMENT
Flight equipment					2,895						2,567
Predelivery deposits for flight equipment					306						298
					3,201						2,865
Less accumulated depreciation					224						180
					2,977						2,685
Other property and equipment					414						352
Less accumulated depreciation					75						59
					339						293
Total property and equipment					3,316						2,978
OTHER ASSETS
Purchased technology, net					37						43
Assets constructed for others					104						30
Other					228						206
Total other assets					369						279
TOTAL ASSETS				$	4,306					$	3,892
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable				$	132					$	99
Air traffic liability					331						243
Accrued salaries, wages and benefits					62						58
Other accrued liabilities					86						53
Short-term borrowings					62						65
Current maturities of long-term debt					169						158
Total current liabilities					842						676
LONG-TERM DEBT					2,287						2,103
DEFERRED TAXES AND OTHER LIABILITIES
Deferred taxes and other					175						172
Construction obligation					84						30
Total deferred taxes and other liabilities					259						202
STOCKHOLDERS' EQUITY
Common stock, 175,473,545 and 172,621,972 shares issued and outstanding in 2006 and 2005, respectively					2						2
Additional paid-in capital					787						764
Retained earnings					127						145
Accumulated other comprehensive income					2						—
Total stockholders' equity					918						911
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	4,306					$	3,892

See accompanying notes to condensed consolidated financial statements.

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JETBLUE AIRWAYS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)

			Three Months Ended June 30,												Six Months Ended June 30,
			2006						2005						2006						2005
OPERATING REVENUES
Passenger				$	579					$	411					$	1,042					$	768
Other					33						18						60						34
Total operating revenues					612						429						1,102						802
OPERATING EXPENSES
Salaries, wages and benefits					134						106						266						204
Aircraft fuel					192						111						352						198
Landing fees and other rents					37						27						75						53
Depreciation and amortization					37						27						71						51
Aircraft rent					25						18						47						36
Sales and marketing					30						20						50						39
Maintenance materials and repairs					23						14						44						28
Other operating expenses					87						66						175						128
Total operating expenses					565						389						1,080						737
OPERATING INCOME					47						40						22						65
OTHER INCOME (EXPENSE)
Interest expense					(42	)					(25	)					(79	)					(46	)
Capitalized interest					7						4						12						8
Interest income and other					13						5						23						8
Total other income (expense)					(22	)					(16	)					(44	)					(30	)
INCOME (LOSS) BEFORE INCOME TAXES					25						24						(22	)					35
Income tax expense (benefit)					11						11						(4	)					16
NET INCOME (LOSS)				$	14					$	13					$	(18	)				$	19
EARNINGS (LOSS) PER COMMON SHARE:
Basic				$	0.08					$	0.08					$	(0.10	)				$	0.12
Diluted				$	0.08					$	0.08					$	(0.10	)				$	0.12

See accompanying notes to condensed consolidated financial statements.

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JETBLUE AIRWAYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)

			Six Months Ended June 30,
			2006						2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)				$	(18	)				$	19
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income taxes					(4	)					15
Depreciation					63						45
Amortization					10						7
Stock-based compensation					11						1
Changes in certain operating assets and liabilities					80						63
Other, net					(13	)					(2	)
Net cash provided by operating activities					129						148
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures					(555	)					(388	)
Predelivery deposits for flight equipment					(75	)					(92	)
Assets constructed for others					(52	)					—
Purchase of held-to-maturity investments					(10	)					(5	)
Proceeds from maturities of held-to-maturity investments					5						13
Purchase of available-for-sale securities					(350	)					(448	)
Sale of available-for-sale securities					381						368
Other, net					(8	)					(4	)
Net cash used in investing activities					(664	)					(556	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of common stock					12						10
Issuance of long-term debt					385						514
Aircraft sale and leaseback transactions					253						—
Short-term borrowings					34						—
Construction obligation					80						—
Repayment of long-term debt					(190	)					(48	)
Repayment of short-term borrowings					(37	)					(23	)
Other, net					(2	)					(7	)
Net cash provided by financing activities					535						446
INCREASE IN CASH AND CASH EQUIVALENTS					—						38
Cash and cash equivalents at beginning of period					6						19
Cash and cash equivalents at end of period				$	6					$	57

See accompanying notes to condensed consolidated financial statements.

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JETBLUE AIRWAYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation:    Our condensed consolidated financial statements include the accounts of JetBlue Airways Corporation and our subsidiaries, collectively ‘‘we’’ or the ‘‘Company’’, with all intercompany transactions and balances having been eliminated. Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These condensed consolidated financial statements and related notes should be read in conjunction with our 2005 audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005.

These condensed consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the Securities and Exchange Commission, or the SEC, and, in our opinion, reflect all adjustments including normal recurring items which are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for the entire year.

Stock-Based Compensation:    Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and related interpretations, or SFAS 123(R), to account for stock-based compensation using the modified prospective transition method and therefore will not restate our prior period results. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and revises guidance in SFAS 123, Accounting for Stock-Based Compensation. Among other things, SFAS 123(R) requires that compensation expense be recognized in the financial statements for share-based awards based on the grant date fair value of those awards. The modified prospective transition method applies to (a) unvested stock options under our 2002 Stock Incentive Plan, or 2002 Plan, and issuances under our Crewmember Stock Purchase Plan, or CSPP, outstanding as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and (b) any new share-based awards granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. We have recorded $6 million and $11 million of stock-based compensation expense, net of estimated forfeitures, during the three and six months ended June 30, 2006, respectively, as a result of our adoption of SFAS 123(R). See Note 2 for information on the assumptions we used to calculate the fair value of stock-based compensation.

Prior to January 1, 2006, we accounted for these stock-based compensation plans in accordance with APB No. 25 and related interpretations. Accordingly, compensation expense for a stock option grant was recognized only if the exercise price was less than the market value of our common stock on the grant date. Compensation expense was not recognized under our CSPP as the purchase price of the stock issued thereunder was not less than 85% of the lower of the fair market value of our common stock at the beginning of each offering period or at the end of each purchase period under the plan. Prior to our adoption of SFAS 123(R), as required under the disclosure provisions of SFAS 123, as amended, we provided pro forma net income (loss) and earnings (loss) per common share for each period as if we had applied the fair value method to measure stock-based compensation expense.

SFAS 123(R) requires the benefits associated with tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as

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previously required. For the three and six months ended June 30, 2006, we did not record any excess tax benefit generated from option exercises.

The table below summarizes the impact on our results of operations for the three and six months ended June 30, 2006 of outstanding stock options under our 2002 Plan and issuances under our CSPP recognized under the provisions of SFAS 123(R) (in millions, except per share data):

			Three Months Ended June 30, 2006						Six Months Ended June 30, 2006
Stock-based compensation expense:
Issuances under crewmember stock purchase plan				$	4					$	8
Employee stock options					2						3
Income tax benefit					(1	)					(2	)
Net increase in stock-based compensation expense				$	5					$	9
Effect on earnings (loss) per common share:
Basic				$	0.03					$	0.05
Diluted				$	0.03					$	0.05

Prior to our adoption of SFAS 123(R), we presented unearned compensation as a separate component of stockholders' equity. In accordance with the provisions of SFAS 123(R), on January 1, 2006, we reclassified unearned compensation as additional paid-in capital on our balance sheet.

The following table illustrates the effect on net income and earnings per common share for the three and six months ended June 30, 2005 as if we had applied the fair value method to measure stock-based compensation, as required under the disclosure provisions of SFAS No. 123 (in millions, except per share amounts):

			Three Months Ended June 30, 2005						Six Months Ended June 30, 2005
Net income, as reported				$	13					$	19
Deduct: Stock-based compensation expense determined under the SFAS 123 fair value method, net of tax
Crewmember stock purchase plan					(2	)					(4	)
Employee stock options					(3	)					(6	)
Pro forma net income				$	8					$	9
Earnings per common share:
Basic – as reported				$	0.08					$	0.12
Basic – pro forma				$	0.05					$	0.06
Diluted – as reported				$	0.08					$	0.12
Diluted – pro forma				$	0.05					$	0.06

Note 2 – Stock-Based Compensation

We use a Black-Scholes-Merton option pricing model to estimate the fair value of share-based awards under SFAS 123(R), which is the same valuation technique we previously used for pro forma disclosures under SFAS 123. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility. We have reviewed our historical pattern of option exercises and have determined that meaningful differences in option

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exercise activity existed among employee job categories. Therefore, for all stock options granted after January 1, 2006, we have categorized these awards into three groups of employees for valuation purposes. We have determined there were no meaningful differences in employee activity under our CSPP due to the nature of the plan.

We estimate the expected term of options granted using an implied life derived from the results of a lattice model, which incorporates our historical exercise and post-vesting employment termination patterns, which we believe are representative of future behavior. The expected term for our CSPP valuation is based on the length of each purchase period as measured at the beginning of the offering period.

We estimate the expected volatility of our common stock at the grant date using a blend of 75% historical volatility of our common stock and 25% implied volatility of two-year publicly traded options on our common stock as of the option grant date. Our decision to use a blend of historical and implied volatility was based upon the volume of actively traded options on our common stock and our belief that historical volatility alone may not be completely representative of future stock price trends.

Our risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Therefore, we assumed an expected dividend yield of zero.

Additionally, SFAS 123(R) requires us to estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We record stock-based compensation expense only for those awards expected to vest using an estimated forfeiture rate based on our historical pre-vesting forfeiture data. Previously, we accounted for forfeitures as they occurred under the pro forma disclosure provisions of SFAS 123 for periods prior to 2006.

The following table shows our assumptions used to compute the stock-based compensation expense and pro forma information for stock option grants and purchase rights under our CSPP issued during the three and six months ended June 30, 2006 and 2005.

			Stock Options
			Three Months Ended June 30,						Six Months Ended June 30,
			2006			2005			2006			2005
Expected term (years)			4.1 - 6.8			2.5 - 5.9			4.1 - 6.8			2.5 - 5.9
Volatility			44.9%			38.0%			44.3%			38.0%
Risk-free interest rate			5.0%			3.7%			4.8%			3.7%

			CSPP
			Three Months Ended June 30,
			2006			2005
Expected term (years)			0.5 - 2.0			0.5 - 2.0
Volatility			44.6%			38.0%
Risk-free interest rate			5.0%			3.4%

The weighted average grant date fair value of options granted during the three and six months ended June 30, 2006 was $4.94 and $5.04 per option, respectively. The weighted average grant date fair value of options granted during the three and six months ended June 30, 2005 was $4.90 and $4.99 per option, respectively. Unrecognized stock-based compensation expense was approximately $39 million as of June 30, 2006, relating to a total of nine million unvested stock options under our 2002 Plan and purchase rights under our CSPP. We expect to recognize this stock-based compensation expense over a weighted average period of approximately three years. The total fair value of options vested during the six months ended June 30, 2006 was approximately $1 million.

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Stock Incentive Plan:    Prior to December 31, 2005, options issued under our 2002 Plan had vesting terms ranging from three to seven years. For issuances under the 2002 Plan beginning in 2006, we revised the vesting terms so that all options granted will now vest in equal installments over a period of three or five years. All options issued under the 2002 Plan expire 10 years from the date of grant.

The following is a summary of stock option activity for the three and six months ended June 30, 2006:

			Three Months Ended June 30, 2006												Six Months Ended June 30, 2006
			Shares						Weighted Average Exercise Price						Shares						Weighted Average Exercise Price
Outstanding at beginning of period					31,032,022					$	11.82						31,086,422					$	11.52
Granted					2,100,600						10.60						3,229,449						10.81
Exercised					(754,877	)					1.70						(1,841,148	)					1.86
Forfeited					(168,977	)					14.65						(265,955	)					15.63
Outstanding at June 30, 2006					32,208,768					$	11.96						32,208,768					$	11.96

As of June 30, 2006, we had 6,073,971 shares available for future grants. The following is a summary of outstanding stock options at June 30, 2006:

			Options Outstanding																								Options Vested
Range of exercise prices			Shares						Weighted Average Remaining Contractual Life (years)						Weighted Average Exercise Price						Aggregate Intrinsic Value (millions)						Shares						Weighted Average Remaining Contractual Life (years)						Weighted Average Exercise Price						Aggregate Intrinsic Value (millions)
$0.33 to $12.29					14,513,001						6.3					$	6.85					$	82.1						10,697,444						5.3					$	5.42					$	75.8
$12.76 to $29.71					17,695,767						7.8						16.15						—						16,072,643						7.9						15.90						—
					32,208,768						7.2					$	11.96					$	82.1						26,770,087						6.9					$	11.72					$	75.8

The total intrinsic value, determined as of the date of exercise, of options exercised during the three months and six months ended June 30, 2006 was $7 million and $18 million, respectively. The total intrinsic value of options exercised during the three months and six months ended June 30, 2005 was $5 million and $9 million, respectively. We received $1 million and $3 million in cash from option exercises for the three and six months ended June 30, 2006, respectively.

Stock Purchase Plan:    The following is a summary of CSPP share reserve activity for the six months ended June 30, 2006:

			Shares
Available for future purchases, January 1, 2006					13,706,245
Shares reserved for issuance					5,178,659
Common stock purchased					(1,010,456	)
Available for future purchases, June 30, 2006					17,874,448

We received $9 million for shares issued under our CSPP during the six months ended June 30, 2006.

Note 3 – Long-term Debt

During the six months ended June 30, 2006, we issued $193 million in fixed rate equipment notes due through 2018, which are secured by five Airbus A320 aircraft and one EMBRAER 190 aircraft and $69 million in floating rate equipment notes, which are secured by two Airbus A320 aircraft. At June 30, 2006, the weighted average interest rate of all of our long-term debt was 6.3%, and maturities were $93 million for the remainder of 2006, $177 million in 2007, $212 million in 2008, $127 million in

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each of 2009 and 2010 and $1.72 billion thereafter. The weighted average interest rate of our outstanding short-term borrowings at June 30, 2006 and December 31, 2005 was 6.9% and 6.1%, respectively.

Through June 2006, we refinanced $123 million of debt associated with five owned Airbus A320 aircraft, which eliminated all financial covenants associated with our debt instruments. In June 2006, we reached an agreement in principle, subject to execution of the definitive agreements, to sell five of our Airbus A320 aircraft in September and October 2006. On June 30, 2006, we filed an automatic shelf registration statement on Form S-3 with the SEC relating to our sale in one or more public offerings of debt securities, pass through certificates, common stock, preferred stock and/or other securities. Through June 30, 2006, we had not issued any securities under this registration statement.

Note 4 – Income Taxes

Our effective tax rate differs from the federal statutory rate primarily due to non-deductible expenses, and is offset somewhat by state tax credits.

Note 5 – Assets Constructed for Others

In November 2005, we executed a lease agreement with the Port Authority of New York and New Jersey, or the PANYNJ, for the construction and operation of a new terminal at New York's John F. Kennedy International Airport, or JFK, which the PANYNJ will own. For financial reporting purposes only, in accordance with Emerging Issues Task Force Issue 97-10, The Effect of Lessee Involvement in Asset Construction, we are required to reflect an asset and liability for in-process construction related to this project. The project costs expended to date are reflected as Assets Constructed for Others in other long-term assets and as Construction Obligation in other long-term liabilities in the accompanying condensed consolidated balance sheets. The PANYNJ is reimbursing us for the costs of constructing the project in accordance with the lease. During the six months ended June 30, 2006, we incurred $74 million in project costs, $20 million of which were accrued, and received $80 million in reimbursements from the PANYNJ. At June 30, 2006 and December 31, 2005, we had a current receivable from the PANYNJ of $1 million and $29 million, respectively.

Note 6 – Comprehensive Income (Loss)

Comprehensive income (loss) includes changes in the fair value and reclassifications into earnings of amounts previously deferred related to our crude oil and heating oil financial derivative instruments, which qualify for hedge accounting in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Comprehensive income was $14 million for the three months ended June 30, 2006 and comprehensive loss was $16 million for the six months ended June 30, 2006. Comprehensive income was $6 million and $19 million for the three and six months ended June 30, 2005, respectively.

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Note 7 – Earnings (Loss) Per Share

The following table shows how we computed basic and diluted earnings (loss) per common share (dollars in millions; share data in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2006						2005						2006						2005
Numerator:
Net income (loss)				$	14					$	13					$	(18	)				$	19
Effect of dilutive securities:
Interest on convertible debt, net of profit sharing and income taxes					—						1						—						—
Net income (loss) applicable to common stockholders after assumed conversion for diluted earnings per share				$	14					$	14					$	(18	)				$	19
Denominator:
Weighted average shares outstanding for basic earnings (loss) per share					174,772						157,402						174,013						156,947
Effect of dilutive securities:
Employee stock options					6,050						8,831						—						8,671
Convertible debt					—						14,620						—						—
Unvested common stock					19						48						—						47
Adjusted weighted average shares outstanding and assumed conversions for diluted earnings (loss) per share					180,841						180,901						174,013						165,665

For the three and six months ended June 30, 2006, a total of 20.8 million shares issuable upon conversion of our convertible debt were excluded from the diluted earnings (loss) per share computation since the assumed conversion would be anti-dilutive. For the three and six months ended June 30, 2005, 6.2 million and 14.7 million shares, respectively, were excluded.

We also excluded 22.3 million and 36.2 million shares issuable upon exercise of outstanding stock options for the three and six months ended June 30, 2006, respectively, from the diluted earnings (loss) per share computation since either their exercise price was greater than the average market price of our common stock or they were otherwise anti-dilutive. For the three and six months ended June 30, 2005, 11.8 million and 11.9 million shares, respectively, were excluded.

Note 8 – Employee Retirement Plan

We sponsor a retirement savings 401(k) defined contribution plan and a profit sharing retirement plan, or the Plan, covering all of our employees. Our contributions expensed for the Plan for the three months ended June 30, 2006 and 2005 were $2 million and $6 million, respectively, and contributions expensed for the Plan for the six months ended June 30, 2006 and 2005 were $5 million and $10 million, respectively.

Note 9 – Commitments

As of June 30, 2006, our firm aircraft orders consisted of 91 Airbus A320 aircraft, 84 EMBRAER 190 aircraft and 32 spare engines scheduled for delivery through 2012. Committed expenditures for these aircraft and related flight equipment, including estimated amounts for contractual price escalations and predelivery deposits, will be approximately $550 million for the remainder of 2006, $995 million in 2007, $1.05 billion in 2008, $1.18 billion in 2009, $1.23 billion in 2010 and $1.03 billion thereafter.

During the six months ended June 30, 2006, we entered into sale and leaseback transactions for 10 EMBRAER 190 aircraft as well as leases for certain other facilities and equipment. We deferred

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$7 million in gains related to these sale and leaseback transactions, which are being recognized on a straight-line basis over their 18-year lease terms as a reduction to aircraft rent expense. Future minimum lease payments associated with these operating leases totaled $385 million at June 30, 2006. These amounts are in addition to the minimum lease payments described in Note 3 to our audited financial statements included in our 2005 Form 10-K.

Note 10 – Financial Instruments and Risk Management

The fair value of our $425 million aggregate principal amount of convertible debt, based on quoted market prices, was $400 million and $438 million at June 30, 2006 and December 31, 2005, respectively. The fair value of our other long-term debt, which approximated its carrying value, was estimated using other fixed rate debt discounted cash flow analysis based on our current incremental borrowing rates for instruments with similar terms. The carrying values of all other financial instruments approximated their fair values.

The Company is exposed to the effect of changes in the price and availability of aircraft fuel. To manage this risk, we periodically purchase crude or heating oil option and swap contracts. The following is a summary of our derivative contracts (in millions, except as otherwise indicated):

			2006						2005
At June 30:
Fair value of derivative instruments				$	13					$	23
Longest remaining term (months)					12						6
Hedged volume (barrels, in thousands)					2,845						1,000

			Three Months Ended June 30,												Six Months Ended June 30,
			2006						2005						2006						2005
Hedge effectiveness gains, net, recognized in aircraft fuel expense				$	5					$	10					$	4					$	18
Hedge ineffectiveness net gains recognized in other income (expense)					—						—						1						—
Other hedge net gains recognized in other income (expense)					6						—						8						—
Percentage of actual consumption hedged					61	%					34	%					67	%					30	%

Note 11 – LiveTV

During the three and six months ended June 30, 2006, LiveTV installed in-flight entertainment systems for other airlines on 13 and 26 aircraft, respectively, bringing total installations of these systems for other airlines to 219 aircraft. Deferred profit on hardware sales and advance deposits for future hardware sales included in non-current liabilities in the accompanying condensed balance sheets was $22 million and $21 million at June 30, 2006 and December 31, 2005, respectively. Deferred profit to be recognized as income on installations completed through June 30, 2006 will be approximately $2 million for the remainder of 2006, $4 million for each of the next three years and $6 million thereafter.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Outlook

For the remainder of the year, we will continue to execute our Return to Profitability, or RTP, plan that was initially implemented in April. This plan focuses on a combination of right-sizing capacity, optimizing revenue sources and introducing new revenue initiatives as well as cost reductions. In the second half of the year, we expect our percentage of system-wide capacity in East-West markets will continue to decrease, with capacity additions focusing more on short- and medium-haul markets. Right-sizing our capacity also includes the anticipated sale of five existing Airbus A320 aircraft in September and October 2006. We expect the year-over-year upward trend in our average fares to continue through 2006, despite the anticipated decrease in average stage length. The expected increases in average fares, however, are not enough to combat the rising cost of aircraft fuel. Therefore, we are undertaking several cost-reduction initiatives, including improving fuel efficiency, increasing the use of supply chain management, reducing the number of full-time equivalent employees to 80 per aircraft, and institutionalizing a commitment to low-cost spending practices in all areas of our operations. We expect to achieve approximately $60 million of net revenue and expense savings as a result of these initiatives through the remainder of the year.

We expect our full-year operating capacity to increase approximately 20% to 22% over 2005 with the addition of 10 new Airbus A320 aircraft and 10 new EMBRAER 190 aircraft to our operating fleet during the remainder of 2006. The shorter range EMBRAER 190 aircraft, which is expected to represent 5% of our total estimated 2006 operating capacity, as well as shifting some of our Airbus A320 aircraft away from East-West flying, will result in an expected 12% decrease in 2006 average stage length. While the shorter average stage length will result in higher unit costs, we expect the increase in unit revenues to be higher than the increase in unit costs.

Fuel costs continue to rise and may increase further. We expect to incur higher fuel costs as a result of higher underlying fuel prices, as we have hedged only 40% of our remaining anticipated fuel requirements for 2006. As of June 30, 2006, 15% of our forecasted remaining consumption for the year was hedged with crude oil at an average of $68 per barrel, with upside protection capped at $85 per barrel, and 25% was hedged with heating oil at an average price of $2.10 per gallon, as compared to having 20% of our 2005 consumption hedged with crude oil at an average of $30 per barrel. Assuming fuel prices of $2.09 per gallon, net of effective hedges, our cost per available seat mile for 2006 is expected to increase by 14% to 16% over 2005 and our operating margin is expected to be between 2% and 4%.

Results of Operations

The U.S. domestic airline environment continues to be extremely challenging primarily due to aircraft fuel prices that remain at all-time highs. During the second quarter, we implemented our RTP plan, which contributed to our profitability this quarter. Average fares for the quarter increased 15% over 2005 to $127.87 and load factor declined 5.5 points to 82.2% from the same period of 2005. Compared to the first quarter of 2006, average fares increased 20% from $106.86 and load factor declined 2.0 points from 84.2%.

Our on-time performance, defined by the U.S. Department of Transportation as arrivals within 14 minutes of schedule, was 77.9% in the second quarter of 2006 compared to 76.0% for the same period in 2005. Our on-time performance and reliability of the EMBRAER 190 continues to improve as we gain additional experience with this new aircraft type. As a result, we plan to increase average daily utilization by maintaining fewer spare aircraft in the third quarter. Our on-time performance was also affected by our commitment to operate our scheduled flights whenever possible, as reflected by our 99.8% and 99.7% completion factors in the second quarters of 2006 and 2005, respectively.

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Three Months Ended June 30, 2006 and 2005

Our net income for the three months ended June 30, 2006 was $14 million compared to net income of $13 million for the three months ended June 30, 2005. Diluted earnings per share was $0.08 for the second quarter of both 2006 and 2005. Our operating income for the three months ended June 30, 2006 was $47 million compared to operating income of $40 million for the same period in 2005 and our operating margin was 7.7%, a decrease of 1.7 points from the same period in 2005.

Operating Revenues.    Operating revenues increased 42%, or $183 million, primarily due to an increase in passenger revenues. Increased passengers resulting from a 38% increase in departures, or $64 million, and a 22% increase in yield, or $104 million, drove the increase in passenger revenues of $168 million for the three months ended June 30, 2006. Although our load factor was 5.5 points lower than that of last year, the increase in our yields has more than compensated for this decrease and we expect that yields for the full year will also be higher than 2005.

Other revenue increased 81%, or $15 million, primarily due to increased change fees of $6 million resulting from more passengers and increased adherence to related company policies, increases in LiveTV third party revenues of $3 million and the marketing component of TrueBlue point sales of $2 million.

Operating Expenses.    Operating expenses increased 45%, or $176 million, due primarily to an average of 28 additional aircraft in service in 2006 and a 38% increase in fuel cost per gallon. Operating capacity increased 23% to 7.2 billion available seat miles due to having 38% more average aircraft in service offset partly by the usage of the EMBRAER 190 in 2006, which has lower utilization than the Airbus A320. Average stage length decreased 8% due to capacity reductions in our East-West markets and operation of the shorter-range EMBRAER 190. Operating expenses per available seat mile increased 18% to 7.83 cents for the three months ended June 30, 2006. Had fuel prices remained at the 2005 levels, our cost per available seat mile, or CASM, would have increased by 9% to 7.26 cents. In detail, operating costs per available seat mile were (percent changes are based on unrounded numbers):

			Three Months Ended June 30,												Percent Change
			2006						2005
			(in cents)
Operating expenses:
Salaries, wages and benefits					1.86						1.81						3.1	%
Aircraft fuel					2.66						1.91						39.9	%
Landing fees and other rents					.52						.46						12.8	%
Depreciation and amortization					.52						.45						14.2	%
Aircraft rent					.34						.31						9.9	%
Sales and marketing					.41						.35						18.0	%
Maintenance materials and repairs					.32						.23						35.2	%
Other operating expenses					1.20						1.13						6.2	%
Total operating expenses					7.83						6.65						17.8	%

Salaries, wages and benefits increased 27%, or $28 million, due primarily to an increase in average full-time equivalent employees of 32% and $6 million in non-cash stock-based compensation expense, partially offset by $4 million of lower profit sharing in 2006 compared to 2005. Cost per available seat mile increased 3% as a result of increased stock-based compensation expense, offset by reduced hiring.

Aircraft fuel expense increased 72%, or $81 million, due to 19 million more gallons of aircraft fuel consumed resulting in $28 million of additional fuel expense and, after the impact of fuel hedging, a 38% increase in average fuel cost per gallon, or $53 million. Aircraft fuel prices remain at historically high levels, with our average fuel cost per gallon at $2.06 for the second quarter of 2006 compared to $1.50 for the second quarter of 2005. Our fuel consumption per block hour decreased 4% due to utilization of the smaller EMBRAER 190 aircraft and various fuel conservation initiatives. Had fuel consumption per block hour remained constant, our fuel expense would have been higher by $8 million. Cost per available seat mile increased 40% due to the increase in fuel prices.

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Landing fees and other rents increased 39%, or $10 million, due to a 38% increase in departures over 2005 and higher average landing fee rates. Cost per available seat mile increased 13% due primarily to ground rents associated with our new terminal under construction at New York's John F. Kennedy International Airport, or JFK, as well as higher rates.

Depreciation and amortization increased 41%, or $10 million, due primarily to having 16 more average owned aircraft during the three months ended June 30, 2006 compared to the same period in 2005. Cost per available seat mile increased 14% as a result of our new seven gate temporary facility at JFK, hangars, training center and flight simulators.

Aircraft rent increased 35%, or $7 million, due to leasing 15 new EMBRAER 190 aircraft. Cost per available seat mile increased 10% due to a higher percentage of our aircraft fleet being leased.

Sales and marketing expense increased 45%, or $10 million, due to $5 million in higher credit card fees resulting from increased passenger revenues and $5 million in increased advertising expenses. On a cost per available seat mile basis, sales and marketing expense increased 18% primarily due to more advertising related to the launch of a new advertising campaign. We currently book all of our reservations through a combination of our website and our agents (79% and 21% in 2006, respectively); however, we are evaluating other forms of distribution.

Maintenance materials and repairs increased 67%, or $9 million, due to an average of 28 additional operating aircraft in 2006 compared to the same period in 2005 and a gradual aging of our fleet. Cost per available seat mile increased 35% due primarily to operating under engine and airframe third-party maintenance contracts in 2006, compared to expensing these repairs on a time and materials basis in the same period of 2005 when we also benefited from one-time warranty coverage on our engines. This increase was partially offset by three fewer airframe checks in 2006 compared to 2005. Maintenance expense is expected to increase significantly as our fleet ages.

Other operating expenses increased 31%, or $21 million, primarily due to higher variable costs associated with increased capacity and number of passengers served. Cost per available seat mile increased 6%.

Other Income (Expense).    Interest expense increased 65%, or $17 million, due primarily to the debt financing of 16 additional aircraft, six flight simulators and our Orlando hangar and training facility, which resulted in $9 million in additional interest expense, and higher rates, which resulted in $7 million in additional interest expense. Interest expense also includes the accretion of interest of $1 million related to our construction obligation for the new terminal at JFK, which was also capitalized and contributed to the $3 million increase in capitalized interest. Interest income and other increased 161%, or $8 million, primarily due to fuel hedge gains of $6 million and higher interest rates on our investment securities in 2006.

Income Tax Expense (Benefit).    Our effective tax rate for the three months ended June 30, 2006 was 45% compared to 46% for same period in 2005. Our second quarter 2006 rate differs from the statutory rate due to the non-deductibility of certain items for tax purposes and the relationship of these items to our operating results for the quarter. The impact of these non-deductible items could result in our full year effective tax rate differing significantly from that of our second quarter rate.

Six Months Ended June 30, 2006 and 2005

We had a net loss of $18 million for the six months ended June 30, 2006 compared to net income of $19 million for the six months ended June 30, 2005. Diluted loss per share was $0.10 for the six months ended June 30, 2006 compared to diluted earnings per share of $0.12 for the same period in 2005. Our operating income for the six months ended June 30, 2006 was $22 million compared to $65 million for the same period in 2005 and our operating margin was 2.0%, a decrease of 6.1 points from the same period in 2005.

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Operating Revenues.    Operating revenues increased 37%, or $300 million, primarily due to an increase in passenger revenues. Increased passengers resulting from a 36% increase in departures, or $153 million, and a 13% increase in yield, or $121 million, drove the increase in passenger revenues of $274 million for the six months ended June 30, 2006. Other revenues increased 74%, or $26 million, primarily due to increased change fees of $8 million resulting from more passengers and increased adherence to related company policies, increases in LiveTV third party revenues of $6 million and the marketing component of TrueBlue point sales of $5 million.

Operating Expenses.    Operating expenses increased 47%, or $343 million, due to an average of 26 additional aircraft in service in 2006 and a 40% increase in fuel cost per gallon. Operating capacity increased 25% to 13.8 billion available seat miles. Average stage length decreased 6% due to capacity reductions in our East-West markets and operation of the shorter-range EMBRAER 190 in 2006. Operating expenses per available seat mile increased 17% to 7.84 cents for the six months ended June 30, 2006. Had fuel prices remained at the 2005 levels, our cost per available seat mile would have increased 8% to 7.20 cents. In detail, operating costs per available seat mile were (percent changes are based on unrounded numbers):

			Six Months Ended June 30,												Percent Change
			2006						2005
			(in cents)
Operating expenses:
Salaries, wages and benefits					1.93						1.85						4.4	%
Aircraft fuel					2.56						1.80						42.3	%
Landing fees and other rents					.54						.48						13.2	%
Depreciation and amortization					.52						.46						11.8	%
Aircraft rent					.34						.33						4.2	%
Sales and marketing					.36						.36						0.5	%
Maintenance materials and repairs					.32						.24						28.7	%
Other operating expenses					1.27						1.17						8.6	%
Total operating expenses					7.84						6.69						17.1	%

Salaries, wages and benefits increased 31%, or $62 million, due to an increase in average full-time equivalent employees of 33% and $11 million in non-cash stock-based compensation expense offset in part by recording $6 million less profit sharing in 2006 compared to 2005. Cost per available seat mile increased 4% principally as a result of stock-based compensation expense.

Effective January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment, which requires us to record the fair value of stock options granted under our 2002 Stock Incentive Plan and purchase rights issued under our stock purchase plan. Because we elected to use the modified prospective transition method, results for prior periods have not been restated. At June 30, 2006, there was $39 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all of our equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over the remaining vesting period of five years. See Notes 1 and 2 to our condensed consolidated financial statements for more information regarding the adoption of this standard.

Aircraft fuel expense increased 78%, or $154 million, due to 38 million more gallons of aircraft fuel consumed resulting in $54 million of additional fuel expense and, after the impact of fuel hedging, a 40% increase in average fuel cost per gallon, or $100 million. Aircraft fuel prices remain at historically high levels, with our average fuel price per gallon at $1.97 compared to $1.41 for the six months ended June 30, 2005. Our fuel consumption per block hour decreased 2% due to utilization of the more fuel efficient EMBRAER 190 aircraft and various fuel conservation initiatives. Had fuel consumption per block hour remained constant, our fuel expense would have been higher by $9 million. Cost per available seat mile increased 42% primarily due to the increase in average fuel cost per gallon.

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Landing fees and other rents increased 42%, or $22 million, due to a 36% increase in departures over 2005 and higher average landing fee rates. Cost per available seat mile increased 13% primarily due to ground rents associated with our new terminal under construction at JFK. Landing fees and other rents are expected to increase approximately $5 million for the remainder of 2006 as a result of ground rent at this new terminal.

Depreciation and amortization increased 40%, or $20 million, due primarily to having 16 more average owned aircraft during the six months ended June 30, 2006 compared to the same period in 2005. Cost per available seat mile increased 12% as a result of our new seven gate temporary facility at JFK, hangars, training center and flight simulators.

Aircraft rent increased 30%, or $11 million, due to 15 new EMBRAER 190 aircraft leases. Cost per available seat mile increased 4% due to a higher percentage of our aircraft fleet being leased.

Sales and marketing expense increased 26%, or $11 million, due to $8 million in higher credit card fees resulting from increased passenger revenues and $3 million in increased advertising expenses. On a cost per available seat mile basis, sales and marketing expense increased slightly due to higher credit card fees. We currently book all of our reservations through a combination of our website and our own agents (81% and 19% in 2006, respectively).

Maintenance materials and repairs increased 61%, or $16 million, due to 26 more average operating aircraft in 2006 compared to the same period in 2005 and a gradual aging of our fleet. Cost per available seat mile increased 29% due primarily to operating under engine and airframe maintenance third-party contracts in 2006, compared to expensing these repairs on a time and materials basis in the same period of 2005 when we also benefited from one-time warranty coverage on our engines.

Other operating expenses increased 36%, or $47 million, due to higher variable costs associated with increased capacity and number of passengers served. Cost per available seat mile increased 9% due to a 6% decrease in average stage length, higher personnel costs, fuel related taxes and maintenance related to our new facilities; and as a result of more LiveTV third-party installations.

Other Income (Expense).    Interest expense increased 72%, or $33 million, due to the debt financing of 16 additional aircraft, six flight simulators, and interest on our 3¾% convertible debentures resulting in $17 million of additional interest expense, and higher rates, which resulted in $14 million in additional interest expense. Interest expense also includes the accretion of interest of $2 million related to our construction obligation for the new terminal at JFK, which was also capitalized and contributed to the $4 million increase in capitalized interest, along with higher interest rates. Interest income and other increased 187%, or $15 million, primarily due to fuel hedge gains of $9 million and higher interest rates in 2006.

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The following table sets forth our operating statistics for the three and six months ended June 30, 2006 and 2005:

			Three Months Ended June 30,												Percent Change						Six Months Ended June 30,												Percent Change
			2006						2005												2006						2005
Operating Statistics:
Revenue passengers (thousands)					4,525						3,696						22.4						8,860						7,096						24.9
Revenue passenger miles (millions)					5,924						5,125						15.6						11,460						9,559						19.9
Available seat miles (ASMs) (millions)					7,202						5,846						23.2						13,779						11,015						25.1
Load factor					82.2	%					87.7	%					(5.5	) pts.					83.2	%					86.8	%					(3.6	)pts.
Breakeven load factor(1)					79.5	%					82.0	%					(2.5	)pts.					85.4	%					82.5	%					2.9	pts.
Aircraft utilization (hours per day)					13.0						13.7						(5.6	)					12.9						13.5						(4.3	)
Average fare				$	127.87					$	111.26						14.9					$	117.59					$	108.25						8.6
Yield per passenger mile (cents)					9.77						8.02						21.7						9.09						8.04						13.1
Passenger revenue per ASM (cents)					8.03						7.03						14.2						7.56						6.97						8.4
Operating revenue per ASM (cents)					8.48						7.34						15.6						7.99						7.28						9.7
Operating expense per ASM (cents)					7.83						6.65						17.8						7.84						6.69						17.1
Operating expense per ASM, excluding fuel (cents)					5.17						4.74						9.0						5.28						4.89						7.9
Airline operating expense per ASM (cents)(1)					7.77						6.58						18.1						7.76						6.63						17.2
Departures					37,688						27,382						37.6						72,105						53,019						36.0
Average stage length (miles)					1,253						1,369						(8.4	)					1,249						1,332						(6.2	)
Average number of operating aircraft during period					102.6						74.3						38.1						99.1						72.6						36.5
Average fuel cost per gallon				$	2.06					$	1.50						37.8					$	1.97					$	1.41						39.7
Fuel gallons consumed (millions)					93						75						25.1						179						141						27.4
Percent of sales through jetblue.com during period					79.5	%					77.4	%					2.1	pts.					80.8	%					76.9	%					3.9	pts.
Full-time equivalent employees at period end(1)																							9,337						7,284						28.2

(1)	Excludes operating expenses and employees of LiveTV, LLC which are unrelated to our airline operations.

The following table reconciles our operating expenses reported in accordance with U.S. generally accepted accounting principles, or GAAP, with those that we would have realized had aircraft fuel prices remained at the 2005 levels. In management's view, comparative analysis of period-to-period operating results can be enhanced by excluding the significant volatility in the price of aircraft fuel, which is subject to many economic and political factors that are beyond our control, in addition to the impact of hedging activities. We believe that the presentation of this non-GAAP financial measure is useful to management and investors because it is more indicative of our ability to manage our costs and also assists in understanding the significant impact that fuel prices have had, and continue to have, on our operations. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP.

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			Three Months Ended June 30, 2006												Six Months Ended June 30, 2006
			$						CASM						$						CASM
			(dollars in millions; CASM in cents)
Operating expenses as reported				$	565						7.83						1,080						7.84
Less: Reported aircraft fuel					(192	)					(2.66	)					(352	)					(2.56	)
Add: Aircraft fuel at 2005 cost per gallon					139						1.93						252						1.83
Profit sharing impact					12						0.16						12						0.08
Fuel neutral operating expenses				$	524						7.26					$	992						7.20

Liquidity and Capital Resources

At June 30, 2006, we had cash and cash equivalents of $6 million and investment securities of $462 million compared to cash and cash equivalents of $6 million and investment securities of $478 million at December 31, 2005. Cash flows from operating activities were $129 million for the six months ended June 30, 2006 compared to $148 million for the six months ended June 30, 2005. The decrease in operating cash flows was primarily a result of the increase in fuel price, offset partially by the growth of our business. We rely primarily on operating cash flows to provide working capital. We presently have no lines of credit other than two short-term borrowing facilities for certain aircraft predelivery deposits. At June 30, 2006, we had $62 million in borrowings outstanding under these facilities.

Investing Activities.    During the six months ended June 30, 2006, capital expenditures related to our purchase of flight equipment included expenditures of $477 million for seven aircraft, $75 million for flight equipment deposits and $26 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases and facilities improvements, were $52 million. Net cash provided by the purchase and sale of available-for-sale securities was $31 million.

During the six months ended June 30, 2005, capital expenditures related to our purchase of flight equipment included expenditures of $269 million for eight Airbus A320 aircraft, $92 million for flight equipment deposits and $36 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases and facilities improvements, were $83 million. Net cash used in the purchase and sale of available-for-sale securities was $80 million.

Financing Activities.    Financing activities for the six months ended June 30, 2006 consisted of (1) the sale and leaseback over 18 years of ten EMBRAER 190 aircraft for $253 million by a U.S. leasing institution, (2) our issuance of $193 million in 12-year fixed rate equipment notes to various European banks secured by five Airbus A320 aircraft and one EMBRAER 190 aircraft, (3) our issuance of $69 million in floating-rate equipment notes secured by two Airbus A320 aircraft to various European banks, (4) scheduled maturities of $144 million of debt, (5) the refinancing of $123 million in debt that is secured by five Airbus A320 aircraft, and (6) proceeds from our construction obligation for the new terminal at JFK of $80 million.

On June 29, 2006, we filed an automatic shelf registration statement with the SEC relating to our sale in one or more public offerings of debt securities, pass through certificates, common stock, preferred stock and/or other securities. The net proceeds of any securities we sell under this registration statement may be used to fund working capital and capital expenditures, including the purchase of aircraft and construction of facilities on or near airports. Through June 30, 2006, we had not issued any securities under this registration statement.

Financing activities for the six months ended June 30, 2005 consisted primarily of (1) the financing of eight aircraft with $265 million in floating rate equipment notes purchased with proceeds from our public offering of Series 2004-2 pass-through certificates, (2) the issuance of $250 million of 3¾% convertible debentures, raising net proceeds of approximately $243 million, and (3) scheduled maturities of debt of $48 million.

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Working Capital.    We had a working capital deficit of $221 million at June 30, 2006, which is customary for airlines, primarily because air traffic liability is classified as a current liability. We expect to meet our obligations as they become due through available cash, investment securities and internally generated funds, supplemented as necessary by debt and/or equity financings and proceeds from sale and leaseback transactions. We expect to generate positive working capital through our operations. However, we cannot predict whether current trends and conditions will continue or what the effect on our business might be from the extremely competitive environment we are operating in or from events that are beyond our control, such as continued unprecedented high fuel prices, the impact of airline bankruptcies or consolidations, U.S. military actions or acts of terrorism. We still need to obtain financing for one of our remaining 2006 deliveries, as our anticipated cash flow from operations will not be adequate to cover the acquisition cost of this aircraft. Assuming that we utilize the predelivery short-term borrowing facilities available to us, we believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

Contractual Obligations

Our noncancelable contractual obligations at June 30, 2006 include the following (in millions):

			Payments due in
			Total						2006						2007						2008						2009						2010						Thereafter
Long-term debt(1)				$	3,791					$	173					$	324					$	343					$	245					$	236					$	2,470
Lease commitments					2,034						103						201						186						164						149						1,231
Flight equipment obligations					6,030						550						995						1,045						1,180						1,230						1,030
Short-term borrowings					62						62						—						—						—						—						—
Financing obligations and other(2)					2,348						98						92						112						133						144						1,769
Total				$	14,265					$	986					$	1,612					$	1,686					$	1,722					$	1,759					$	6,500

(1)	Includes actual interest and estimated interest for floating-rate debt based on June 30, 2006 rates.

(2)	Amounts include noncancelable commitments for the purchase of goods and services.

In March 2006, we fully repaid notes on two of our Airbus A320 aircraft, which resulted in the elimination of all financial covenants associated with our debt instruments. Other than the elimination of these financial covenants, there have been no material changes in the terms of our debt instruments from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources included in our 2005 Form 10-K. We are not subject to any financial covenants in any of our new debt obligations issued in 2006. We have $119 million of restricted cash pledged under standby letters of credit related to certain of our leases, $80 million of which will expire in 2007 and the remainder at the end of the related lease terms.

In November 2005, we executed a 30-year lease agreement with the Port Authority of New York and New Jersey, or the PANYNJ, for the construction and operation of a new terminal at JFK with occupancy projected in early 2009, which for financial reporting purposes only, is being accounted for as a financing obligation. JetBlue has committed to rental payments under the lease, including ground rents for the new terminal site, which began on lease execution and are included as part of lease commitments in the table above. Facility rents are anticipated to commence upon the date of our beneficial occupancy of the new terminal and are included as part of financing obligations and other in the table above.

As of June 30, 2006, we operated a fleet of 91 Airbus A320 aircraft and 16 EMBRAER 190 aircraft, of which 67 were owned and 40 were leased under operating leases, and have taken delivery of one Airbus A320 and one leased EMBRAER 190 aircraft, which are not yet in revenue service. The average age of our fleet was 2.6 years at June 30, 2006.

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As of June 30, 2006, we had on order 91 Airbus A320 aircraft and 84 EMBRAER 190 aircraft with options to acquire 50 additional Airbus A320 aircraft and 100 additional EMBRAER 190 aircraft, which are scheduled for delivery through 2016 (on a relatively even basis during each year) as follows:

			Firm																		Option
Year			Airbus A320						EMBRAER 190						End of Year Cumulative Total Fleet (1)						Airbus A320						EMBRAER 190						End of Year Cumulative Total Fleet (2)
Remainder of 2006					9						9						122						—						—						122
2007					12						18						152						—						—						152
2008					12						18						182						2						—						184
2009					16						18						216						4						—						222
2010					18						18						252						4						—						262
2011					18						3						273						6						15						304
2012					6						—						279						16						18						344
2013					—						—												18						18						380
2014					—						—												—						18						398
2015					—						—												—						18						416
2016					—						—												—						13						429
					91						84												50						100

(1)	Assumes the sale of five of our existing A320 aircraft currrently in revenue service anticipated to occur in September and October in 2006.

(2)	Assumes all options are exercised.

Committed expenditures for our 175 firm aircraft and 32 spare engines include estimated amounts for contractual price escalations and predelivery deposits. Debt and lease financing has been arranged for all but one of our remaining 2006 Airbus A320 and all of our EMBRAER 190 aircraft deliveries. Although we believe that debt and/or lease financing should be available for our remaining aircraft deliveries, we cannot assure you that we will be able to secure financing on terms attractive to us, if at all, which may require us to modify our aircraft acquisition plans. Capital expenditures for facility improvements, spare parts and ground purchases, excluding those related to the construction of the new terminal at JFK, are expected to be approximately $100 million for the remainder of 2006.

Off-Balance Sheet Arrangements

None of our operating lease obligations are reflected on our balance sheet. Although some of our aircraft lease arrangements are variable interest entities, as defined by FASB Interpretation No. 46, Consolidation of Variable Interest Entities, or FIN 46, none of them require consolidation in our financial statements. The decision to finance these aircraft through operating leases rather than through debt was based on an analysis of the cash flows and tax consequences of each option and a consideration of our liquidity requirements. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.

We have determined that we hold a variable interest in, but are not the primary beneficiary of, certain pass-through trusts which are the purchasers of equipment notes issued by us to finance the acquisition of new aircraft and held by such pass-through trusts. These pass-through trusts maintain liquidity facilities whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs. The liquidity providers for the Series 2004-1 certificates are Landesbank Hessen-Thüringen Girozentrale and Morgan Stanley Capital Services Inc. The liquidity providers for the Series 2004-2 certificates are Landesbank Baden-Württemberg and Citibank, N.A.

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We utilize a policy provider to provide credit support on the Class G-1 and Class G-2 certificates. The policy provider has unconditionally guaranteed the payment of interest on the certificates when due and the payment of principal on the certificates no later than 18 months after the final expected regular distribution date. The policy provider is MBIA Insurance Corporation (a subsidiary of MBIA, Inc.). Financial information for the parent company of the policy provider is available at the SEC's website at http://www.sec.gov or at the SEC's public reference room in Washington, D.C.

We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our balance sheet, which we believe will not have a significant impact on our results of operations, financial condition or cash flows. We have no other off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Other than the updated discussion of stock-based compensation below, there have been no other material changes to our critical accounting policies and estimates from the information provided in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates included in our 2005 Form 10-K.

Stock-Based Compensation.    All of our employees can purchase shares of our common stock at 85% of the lower of the fair market value per share at the beginning of the offering period or on the purchase date under our stock purchase plan. Purchase dates occur on the last business day of April and October each year. We also grant options to purchase our common stock to certain of our employees. The benefits provided under these plans are stock-based payments subject to SFAS No. 123(R), which we adopted on January 1, 2006.

We estimate the fair value of options granted using the Black-Scholes-Merton option pricing model and the assumptions shown in Note 2 to our condensed consolidated financial statements. We estimate the expected term of options granted using our historical exercise and post-vesting employment termination patterns, which we believe are representative of future behavior. We estimate the expected volatility of our common stock at the grant date using a blend of 75% historical volatility of our common stock and 25% implied volatility of two-year publicly traded options on our common stock as of the option grant date. Our decision to use a blend of historical and implied volatilities was based upon the volume of actively traded options on our common stock and our belief that historical volatility alone may not be completely representative of future stock price trends. Our risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Therefore, we assumed an expected dividend yield of zero. We record stock-based compensation expense only for those awards expected to vest using an estimated forfeiture rate based on our historical pre-vesting forfeiture data and periodically will revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

We may elect to use different assumptions under the Black-Scholes-Merton option pricing model in the future if there is a difference between the assumptions used in determining stock-based compensation cost and the actual factors which become known over time.

The guidance in FAS 123(R) is relatively new and best practices are not well established. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models and there is a possibility that we will adopt different valuation models and assumptions in the future. This may result in a lack of comparability with other companies that use different models, methods and assumptions and in a lack of consistency in future periods.

New Accounting Standard

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109,’’ or FIN 48, which clarifies the accounting and disclosure requirements for uncertainty in tax positions, as defined. We are currently evaluating the provisions of FIN 48, which is effective for fiscal years beginning after December 15, 2006.

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Other Information

New Service.    We continue to add new destinations, as reflected by our new daily non-stop service planned to Nashville, Tennessee in August 2006; Oranjestad, Aruba, Houston, Texas, Sarasota/Bradenton, Florida and Tuscon, Arizona in September 2006; Columbus, Ohio in October 2006; and Cancun, Mexico in the fourth quarter of 2006.

Recent Awards.    In May 2006, JetBlue was named ‘‘Best Low Cost/No Frills Airline’’ by OAG, a global travel and transport information company, as part of their 2006 Airline of the Year Awards. In June 2006, we were rated the best low-cost airline in North America by SkyTrax Research’s World Airline Awards. In July 2006, JetBlue was rated 2006 World’s Best Domestic Airline Award by readers of Travel + Leisure magazine.

Attempted Labor Organizing.    In May 2006, the International Association of Machinists and Aerospace Workers (IAM) filed a petition with the National Mediation Board (NMB) seeking to represent our ground operations, provisioning and related-position employees. On July 18, 2006, the NMB dismissed the IAM's petition for ‘‘insufficient showing of interest’’ because the minimum number of employees in the targeted group did not support holding an election.

Forward-Looking Information.    This report contains forward-looking statements relating to future events and our future performance, including, without limitation, statements regarding financial forecasts or projections, our expectations, beliefs, intentions or future strategies, that are signified by the words ‘‘expects’’, ‘‘anticipates’’, ‘‘intends’’, ‘‘believes’’, ‘‘plans’’, or similar language. Our actual results and the timing of certain events could differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we may not inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter.

Forward-looking statements involve risks, uncertainties and assumptions and are based on information currently available to us. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including without limitation, our extremely competitive industry; increases in fuel prices, maintenance costs and interest rates; our ability to implement our growth strategy, including the integration of the EMBRAER 190 aircraft into our operations; our significant fixed obligations; our ability to attract and retain qualified personnel and maintain our culture as we grow; our reliance on high daily aircraft utilization; our dependence on the New York metropolitan market; our reliance on automated systems and technology; our reliance on a limited number of suppliers; changes in or additional government regulation; and changes in our industry due to other airlines’ financial condition; and external geopolitical events and conditions.

Additional information concerning these and other factors is contained in our SEC filings, including but not limited to, our 2005 Form 10-K.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in market risks from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our 2005 Form 10-K, except as follows:

Aircraft Fuel.    As of June 30, 2006, we had hedged approximately 40% of our expected remaining 2006 fuel requirements using crude and heating oil options and swaps. Our results of operations are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10% increase in the June 30, 2006 cost per gallon of fuel, including the effects of our fuel hedges. Based on our projected twelve month fuel consumption, such an increase would result in an increase to aircraft fuel expense of approximately $95 million, compared to an estimated $52 million for 2005 measured as of June 30, 2005. See Note 10 to our unaudited condensed consolidated financial statements for additional information.

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Fixed Rate Debt.    On June 30, 2006, our $425 million aggregate principal amount of convertible debt had an estimated fair value of $400 million, based on quoted market prices.

Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2006. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings.

In the ordinary course of our business, we are party to various legal proceedings and claims which we believe are incidental to the operation of our business. We believe that the ultimate outcome of these proceedings to which we are currently a party will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders.

At our annual meeting of stockholders held on May 18, 2006, our stockholders approved the election of the persons named below to our Board of Directors for a three-year term expiring in 2009 by the vote indicated below:

			For						Withheld
Dr. Kim Clark					144,674,429						3,889,562
Angela Gittens					147,311,333						1,252,658
Joel Peterson					144,979,057						3,584,934
Ann Rhoades					139,774,262						8,789,729

There were no broker non-votes on this matter. Following the meeting, the terms of office of our other directors, David Barger, David Checketts, Michael Lazarus, Neal Moszkowski, David Neeleman, and Frank Sica continued.

Additionally, at our annual meeting, our stockholders ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2006 by the vote indicated below:

			For						Against						Abstain
Ernst & Young LLP					146,684,408						1,454,827						424,756

There were no broker non-votes on this matter.

Item 6.    Exhibits.

Exhibits: See accompanying Exhibit Index included after the signature page of this report for a list of the exhibits filed or furnished with this report.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

JETBLUE AIRWAYS CORPORATION

(Registrant)

Date: July 25, 2006			By:			/s/ HOLLY NELSON
						Senior Vice President and Controller (principal accounting officer)

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EXHIBIT INDEX

Exhibit Number						Exhibit
	10	.1+				Amendment No. 26 to Airbus A320 Purchase Agreement between AVSA, S.A.V.L. and JetBlue Airways Corporation, dated as of February 27, 2006
	10	.2+				Amendment No. 27 to Airbus A320 Purchase Agreement between AVSA, S.A.V.L. and JetBlue Airways Corporation, dated as of April 25, 2006
	10	.3+				Side Letter No. 20 to V2500 General Terms of Sale between IAE International Aero Engines AG and JetBlue Airways Corporation, dated July 6, 2006.
	12	.1				Computation of Ratio of Earnings to Fixed Charges.
	31	.1				Certifications Pursuant to Rule 13a-14(a)/15d-14(a), furnished herewith.
	31	.2				Certifications Pursuant to Rule 13a-14(a)/15d-14(a), furnished herewith.
	32	.1				Certification Pursuant to Section 1350, furnished herewith.

+	Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed separately with the SEC pursuant to a Confidential Treatment Request filed with the SEC.